BAO3309: Revising the Conceptual Framework for Financial Reporting

This report provides a comprehensive review and revision of the conceptual framework for financial reporting, addressing issues identified by the IASB such as incomplete coverage, unclear guidance, and outdated aspects. It discusses the objectives and purpose of the conceptual framework, emphasizing its role in ensuring consistency and credibility in accounting practices. The report also explores the usefulness of stewardship assessment information in achieving financial objectives, highlighting its importance for constructive dialogue between shareholders and managers. Furthermore, it examines the need for revising the conceptual framework as a standard-setting basis, considering suggestions for improvement and the integration of dual objectives like objectivity and accountability. The report references various academic sources to support its analysis and recommendations for enhancing the framework's effectiveness in meeting the needs of financial statement users and promoting sound financial reporting practices. Desklib offers a wealth of similar solved assignments and resources for students.

Conceptual framework 1
CONCEPTUAL FRAMEWORK
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CONCEPTUAL FRAMEWORK
Objectives and Purpose of CF
CF is a body of inter-connected targets and fundamentals. Its objectives should identify
the purposes and goals of financial reports by an organization. The underlying concept is to help
the organization achieve the targets that it is seeking to achieve. Once the concepts are set-out,
they should help the organization in guidance of selecting transactions, events and circumstances
that should be accounted and reported. The framework also provides that they should be
measured, evaluated and recognized for their milestones. At the end, the concept provides a lay
out of how they would be summarized and reported (Diaz et al., 2015)
With the absence of a CF, accounting standards and reports would develop random
haphazard ways to deal with accounting issues that arise. This obviously results into
inconsistencies. Having a common and a single conceptual framework ensure that preparers and
users of financial statements including accountants have the same knowledge on how to deal
with arising issues (Schnipper et. al., 2015).
For purposes of unusual transactions, which are open to interpretation to financial users,
including accountants and managers, they do have an option. By having a conceptual framework,
there is credibility of the accounting professional overall. While looking to achieve consistency,
conceptual framework is also looking to create a platform where certain parties do not influence
the decision of accountants or financial statements handlers. Through the framework, the large
companies or lobby group, do not have influence on financial decisions made, but rather get
guidance from the framework (Jessen et al., 2014)
The compilation of conceptual framework discourages creative accounting. Creative
accounting can be a source of intimidation. Open abuse from management to the accountants in

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order to provide biased information can be a possibility. They are pressured to providing biased
information while still complying with the relevant regulations and rules. This is more difficult
than having just one consistent and balanced framework that guides all the underlying principles.
For FASB, conceptual framework provides the exact terminologies within which
financial statements should be operated. According to them, this limits confusion that might
result from different perspectives of interpretation. Objectively, the framework provides the
importance and meaning into the accounting profession.
According to Cajaiba-Santana (2014), traditionally, accounting was an ad hoc reasoning
process. The reasoning was placed on the accountants and the financial statement handlers. The
accountants would, therefore, handle both risks and inconsistencies that arose from financial
statements. The conceptual framework is, therefore, seeking to achieve sanity and intellectual
discipline by introducing and implementing conceptual framework.
Anderson et al. (2015), reason that the main purpose of the conceptual framework is to
provide a complete picture of the company, organizations position and performance in reflecting
economic reality that is within the financial operations of the organization. In this logic,
conceptual framework should, in itself, address the question of resources and what made the
component of resources. The concept should not be limited to financial statements alone (Yahya
et al. 2015).
Usefulness of stewardship-assessment information to objectives’ achievement
Stewardship must never be characterized just as information useful in assessing managers
and directors’ competence level and integrity. However, stewardship should provide a basis for
constructive dialogue between shareholders and managers on financial statements and
consistencies. Stewardship is, therefore, a direct support for conceptual framework.

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Stewardship, in its own capacity, is a separate objective of financial reporting. In several
ways including stewardship, has the potential of requiring returns from reshaping business and
being run more effectively by managers and other accountant directors.
With the requirement of stewardship, organizations have to look backwards and highlight
their financial historical performance in relation to the current one. Financial information may be
very different while investors and shareholders need the stewardship analysis tool to access and
analyses previous possibilities coming from historical projections (Amel-Zadeh, Faasse and
Meeks 2016).
Stewardship provides a perfect link through the provision of an account of previous
transactions and the present financial positions. For instance, it is common to find an
organization focusing on management performance as a key indicator of what might happen in
future. These are predicted in terms of cash and statement flows. In addition to this, stewardship
addresses broader context that include disclosure relating to quality and the degree of risk posed
by management during all the organization’s financial processes. Much emphasis is placed on
provision of past information regarding transactions, assets and liabilities (Amel-Zadeh, Faasse
and Meeks 2016).
According to Miller and Oldroyd, (2018), before investing in a firm, the investor does not
just buy liabilities and liabilities. The important part is to trust the intentions and purpose of the
company. That way, the company should feel at ease to provide possible financial information.
The trusted individuals have the authority and management intended to steward the capital given
to them for the rightful purpose.
Stewardship becomes very necessary for financial reporting since it is what most
investors believe. Investors consider two discrete decisions. First, the investor would seek to see

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how the organization has performed over the past period of time. That information would help
predict how the same company will perform in future. This helps them in resource allocation.
The discretion is to analyze the stewardship and prove that it is a key aspect of financial
reporting. This ensures effectiveness in decision making by investors (Miller and Oldroyd
2018).
Stewardship, in itself, entails the notion that management must strive to serve
shareholders’ interest. In the exact opposite, other forms of financial reporting appear narrower
and backward than stewardship. Stewardship as a financial reporting model, encompasses more
accountability responsibilities. It encompasses the ideas of not only the management, but also
establishes the best interest of shareholders and tries to ensure that they are included.
Need for CF’s Revision as a Standard-Setting Basis
The internal public sector that deals with financial reporting issues have received rather
comments suggesting the adjustment or revision of conceptual framework is required to help
them deal with financial statement. Some of these comments result from the objectives and
purpose of the financial framework even after implying that conceptual framework is relevant for
practitioners in dealing with issues. Suggestions have been made in relation to standard setting.
Walton (2018) requires that development and revision of standards is not important for the
coherence of the framework. The framework should be coherent to allow for support and
standard setting. This group insist that there is less certainty on the current impact as focused is
on the past and the future. The group should, therefore, focus in prioritizing dual objectives,
through current certainties and future possibilities as further development of the conceptual
framework.

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IASB, in its latest implementation framework, are less certain about the impact that
conceptual framework will have on the future of standard setting. While they are prioritizing
dual objectivity and accountability, they are urged to conduct research on the urgent impact and
needs on how the conceptual framework will affect quality and standards. Ability to meet
potential user needs should further be developed in order to enable IASB get the best in
implementing the accounting standards (Dufouil et al. 2014).
IASB previously accepted decision-usefulness as a single objective. With the
conceptualization from IRFS they decided to include the dual objective. Conceptual framework
now include stewardship. The two were merged into a manageable one. The challenge is,
therefore, at the operationalization stage as these are all theoretical frameworks. There are no
explicit explanations of how IASB will operationalize each objective within the expected quality
standards. It can, therefore, be recommended that apart from the two objectives in the
framework, the expected user and the framework need to be provided with a new challenge
geared towards meeting and highlighting how these set standards will meet financial user needs
(Linsmeier, 2016))
The IASB and FASB should put emphasis on information that is key to investment, credit
and resource allocation decisions to allow the development of an organization rather than focus
on the stewardship and development manager’s objectivity. This suggestion by Zhang and
Andrew (2014), illuminates the light on what should be the priority of the framework between
individual management brilliance and company potential in development. This is a suggestion to
adjust the framework to enable brilliance in accounting standards.
Capital providers are interested in the amount, timing and the unpredictability of what
would happen in the future. Most importantly, the ability to provide for the generation of cash

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flows in the future and how the generated cash flow affects their interests as capital providers.
According to Fisher and Nehmer (2016), the IASB and FASB are yet to identify the perfect
generic type of information about an entity that will cover all these aspects of accountability.
None of the framework has information on how to deal with purposeful driven disclosure. It
would be advisable to adjust the framework to adapt to the two frameworks that have been
proposed in order to achieve standard required quality in financial reporting using the conceptual
framework.

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References
Amel-Zadeh, A., Faasse, J., Li, K. and Meeks, G., 2016. Stewardship and Value Relevance in
Accounting for the Depletion of Purchased Goodwill.
Anderson, S.B., Brown, J.L., Hodder, L. and Hopkins, P.E., 2015. The effect of alternative
accounting measurement bases on investors’ assessments of managers’ stewardship. Accounting,
Organizations and Society, 46, pp.100-114.
Cajaiba-Santana, G., 2014. Social innovation: Moving the field forward. A conceptual
framework. Technological Forecasting and Social Change, 82, pp.42-51.
Diaz, S., Demissew, S., Carabias, J., Joly, C., Lonsdale, M., Ash, N., Larigauderie, A., Adhikari,
J.R., Arico, S., Báldi, A. and Bartuska, A., 2015. The IPBES Conceptual Framework—
connecting nature and people. Current Opinion in Environmental Sustainability, 14, pp.1-16.
Fisher, I.E. and Nehmer, R.A., 2016. Using language processing to evaluate the equivalency of
the FASB and IASB standards. Journal of Emerging Technologies in Accounting, 13(2), pp.129-
144.
Jessen, F., Amariglio, R.E., Van Boxtel, M., Breteler, M., Ceccaldi, M., Chételat, G., Dubois, B.,

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Dufouil, C., Ellis, K.A., Van Der Flier, W.M. and Glodzik, L., 2014. A conceptual framework
for research on subjective cognitive decline in preclinical Alzheimer's disease. Alzheimer's &
dementia, 10(6), pp.844-852.
Linsmeier, T.J., 2016. Revised model for presentation in statement (s) of financial performance:
Potential implications for measurement in the conceptual framework. Accounting Horizons,
30(4), pp.485-498.
Miller, A.D. and Oldroyd, D., 2018. An Economics Perspective on Financial Reporting
Objectives. Australian Accounting Review, 28(1), pp.104-108.
Miller, A.D. and Oldroyd, D., 2018. Does Stewardship Still Have A Role?. Accounting
Historians Journal, 45(1), pp.69-82.
Schnipper, L.E., Davidson, N.E., Wollins, D.S., Tyne, C., Blayney, D.W., Blum, D., Dicker,
A.P., Ganz, P.A., Hoverman, J.R., Langdon, R. and Lyman, G.H., 2015. American Society of
Clinical Oncology statement: a conceptual framework to assess the value of cancer treatment
options. Journal of Clinical Oncology, 33(23), p.2563.
Walton, P., 2018. Discussion of Barker and Teixeira ([2018]. Gaps in the IFRS Conceptual
Framework. Accounting in Europe, 15) and Van Mourik and Katsuo ([2018]. Profit or loss in the
IASB Conceptual Framework. Accounting in Europe, 15). Accounting in Europe, pp.1-7.

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Yahya, K.A., Fagbemi, T.O., Oyeniyi, K.K. and Sulaiman, A.B., 2015. Impact of IFRS on the
Financial Statements Figures and Key Financial Ratios of Nigerian Banks. Journal of Commerce
(22206043), 7(3).
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), pp.17-26.